Jakarta: In more than 20 years the currency of Indonesia, Rupiah, has touched the historic low as it fell down to 14,777 per dollar. This marks the downfall of the Indonesian currency by 8.93 per cent since the start of the year.
As per the report of Reuters, the Bank Indonesia is intervening in the foreign exchange and bond markets.
Notably, Rupiah has been one of those currencies which have been the worst performing currencies this year. This has been due to the current account deficit and turmoil in the emerging markets due to the Turkey Lira crisis.
Vishnu Varanthan, Head of Economics and Strategy at Mizuho Bank, was quoted on CNBC, saying, “The high foreign-ownership on bonds coupled with Indonesian corporates’ increased USD debt are also rendering (the Indonesian rupiah) prone to more weakness.”
According to Moody’s, the government debt denominated in foreign currencies account for 41 per cent Indonesia which is also the largest economy in Southeast Asia and if further depreciation in Rupiah continues then repaying those debts would be more expensive.
Radhika Rao, DBS Economist was also quoted by CNBC saying, “Authorities have actively supported the (foreign exchange) and bond markets, during recent bouts of volatility. In midst of a broader slide in regional currencies, intervention attempts help to smoothen the downdraft but it will be a challenge to reverse the direction.”
The apex bank of the country is making efforts to support its currency like it has raised the interest rates four times since May and is tapping its foreign cash reserves to buy up the Rupiah.
The government is also working on it so as to stabilize decreasing foreign reserves by imposing import curbs. This will help in containing its current account deficit. With less imports, the need to sell Rupiah to buy more foreign currencies to meet its need will also reduce.
According to Tuan Huynh, Chief Investment Officer for Asia Pacific at Deutsche Bank Wealth Management mentioned in one of the reports that the current account deficit of the country ‘makes it prone to a funding crisis’. It was mentioned in his report that the $2 billion deficit in July was the largest monthly deficit since July 2013.
He further added that for the rest of this year, the monetary policy of the country will be driven by instability and the value of the Rupiah.
